Suzlon Energy Ltd
NSE:SUZLON
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
35.65
84.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Suzlon Energy Ltd
You don't have any saved screeners yet
Thank you very much. Good evening, and thanks for all of you joining the call. I have J.P. Chalasani, Group CEO; Kirti Vagadia, Group CFO; and our Investor Relations team with me in this call. I hope you had a chance to go through our result and the investor presentations. I will share with you an overview of the industries and my team will walk through our quarter 3 and 9 months performance, past which we are happy to take your questions.India is the tops groups of the adopting a clean energy at the large scale, which have never been seen before. In a just over the last 3 years, the installation of renewable energy capacity in India has doubled from 32-gigawatt to 63-gigawatt. So renewable, especially wind and solar, today are not only the cleaner, but also more affordable energy than the coal energy.Within renewables, with over 32-gigawatt installation, wind is not only the most successful and reliable, but also the most affordable energy and clean energy for our MSEB. The solar is 80% imported from China, while wind is 80% make in -- made in India. We have more than 4,000 SME units in our country, who is producing the wind turbine components and turbines and all the value chain. The full supply chain of the wind turbine is highly established in our country, giving us the confidence for the future capacity to build locally manufacture. Not only that India has a high potentiality lately to become a global manufacturing hub for the wind because most of the global company has established their manufacturing capacity in the country, which can help us to also start good level of exports from our nation to the other countries.The government is strongly committed to exponentially grow the wind sectors in the next few years. The wind building road map unveiled by the MNRE gives a very clear volume guidelines -- guidance to attain its target of 60-gigawatt, which we believe will be reached earlier than the 2022.Another good positive move is there, 175-gigawatt target. It's not just restricted to 175-gigawatt. Based on the last [ some ] communication by the MOP, Ministry of Power, it’s India is looking to go up 2022 to 200 gigawatts. Not only that, if wind can able to build more capacity, so that should be -- the option is also available, because we have almost 8- to 10-gigawatt, the manufacturing capacity in our country. We have to leverage that. And that's why in the next 5 years, is it -- it is a possible to 50- to 60-gigawatt capacity can be executed.I'm pleased to note that the first year itself, the 6-gigawatt of the central bidding and approximately 2-gigawatt of the state bidding, thus the total 7- to 8-gigawatt bidding will be completed by this current financial year. So these -- all these projects will be available for the next financial year. Another beauty is starting because of the bidding process well in advance, we have a clarity of the volume. We have a clarity of the PPA. We have the clarity of the order closure and sufficient time for execution. So the whole business cycle for financial year, it will be very smooth and there cannot be uncertainty in between. So it is a great -- the change and move in the business is coming, which can reduce certain cost also, not only that because some quarter is very high peak and some quarter is low peak, which can be avoided. Also, it will give a good comfort on the quality of projects and the working capital cycle will become a very smooth.With the central and state bidding and the retail and capital segment, all put together, India is clearly positioned to become more than 10-gigawatt per year market for the next 5 years. So it is very clear, visibility is improving and the governments are pushing this resource very highest priority.Also, we've seen some of these states are planning and reducing the coal-based power productions, which is a very old, inefficient and expensive plant. So they are planning to shut down also to accommodate the renewable capacity much more in the state. Apart from the above, there are various new and emerging areas, such as repowering, wind solar hybrid, offshore, PTC, which are in the process of getting unlocked. MNRE is taking a constructive steps to develop this area. And they are in a fast process. They are bringing us new policy guideline for all these things.Also, recently MNRE has sent the direction to all the states. Less than 25-megawatt project will be on FiT basis. So that domestic investor can be able to invest in the FiT root, which is the old system. Because the bidding process is for minimum 50-megawatt projects, so the small domestic investor cannot able to participate to accommodate the domestic investors. So 25-megawatt FiT regime will start through the state level regulatory pricing mechanisms. So there are some large-scale opportunity unveiled in the sector. And Suzlon is extremely well positioned to tap the same. Because we are fully vertically integrated and also end-to-end solution provider and more than 12,000-megawatt of the installed base of this service, which has giving us the good opportunity to leverage this volume opportunity into the next coming years.So now I invite my team to take through the -- our quarter 3 and 9 months performance and give you some insight on the business of FY '18. As you know, the FY '18 is a transition year, extremely low volume the current financial year. But irrespective of the uncertainty and the low volumes, I strongly believe in Suzlon within the current environment, we are trying the best and performing the best in the industries. So I am hand overing to the JPC.
Thank you, Tulsi bhai. Good evening to each one of you. India wind industry, as Tulsi bhai explained just now, is at the cusp of revolution with significant policy reforms and is geared for exponential demand growth in the next few years. However, as discussed earlier, the industry is passing through a transition phase during the current year. This is also evident from over 70% drop in India wind commissioning during the first 9 months of this year compared to the same period last year. Suzlon has yet managed to deliver a stable performance much better than the overall industry.We achieved 844-megawatt delivery volumes in the first 9 months, with our full year volumes likely to cross 1.2-gigawatt. This is the year when industry is almost at a standstill. The reasons we're able to achieve this target is thanks to our strong pan-India presence, we're able to tap volumes in small window of opportunities in 1 or 2 states. Also, thanks to our pan-segment focus, we were able to tap captive and PSU demand, which are largely independent of PPAs. This segment contributed to 20% of our total wind volumes achieved.Also, our large O&M base of 11-plus gigawatt in India and 3-plus gigawatt overseas gives us stable escalating revenues. The revenues from this segment is [ anecdotally ], largely insulated from business cycles up and down. The segment contributed to about 20% of overall revenue.Our order backlog now stands at 1,132-megawatt, of this 677-megawatt is formed backed by advance PPA signed and ratified. This is in line with the guidance what we mentioned last time, that henceforth not just advance, we are also taking advance as well as signed and ratified PPA as a base for confirmed orders. So we're continuing with the same conservative way of declaring the orders.The balance 455-megawatt, where we have the advance, we have the signed PPAs and the PPAs are under various states of ratification of the respective regulatory commissions. Once these PPAs get ratified, we reclassify them as our firm order book. For example, in the current quarter, about 185-megawatt got their PPAs ratified, hence we reclassified them as [ firm ].With strong traction and bidding momentum, we're confident of concluding the year with a much stronger order book position. On the industry side, we are seeing a huge traction in bidding. By the end of the current financial year, as Tulsi bhai mentioned that a total of 7 to 8 gigawatts of wind auctions are expected to be concluded. We remain very strongly positioned in the auction regime. Number one, our best-in-class in-house technology and over 2 decades track record enable us to have the tie-ups with very strong customers, which we have witnessed in SECI 1 and SECI 2, ensuring high volume share in bidding market.We are well equipped with the latest technology and innovative next-generation turbines, that enables most competitive LCoE. Our low-cost vertically integrated manufacturing base gives us huge cost advantage. With the declining tariff, there is definitely a pricing and margin pressure. However, the same will get offset by operating leverage benefit, thanks to the scale and partially is being offset by our stringent focus on technology and cost optimization.We aim to substantially lower our cost structure further. Our growth strategy is based on strengthening our leadership position in India. We also target to strengthen our international operations as part of our market diversification strategy. Our OMS vertical is growing into sizable business, giving us [indiscernible] cash flows as I mentioned earlier. We now also intend to leverage this to explore additional growth opportunities in areas such as providing OMS for third-party turbines, developing and offering value-added products and also tapping repowering opportunities. Suzlon is well equipped to capitalize on the inevitable growth of renewables, both in the domestic as well as international markets.For this now I'll ask Kirti to take you through the detailed aspects of the financial performance.
Thank you, JP ji. Good evening to all of you. In first 9-month FY '18, despite ongoing transition period for wind industry in India, we delivered total 844-megawatt, including 683-megawatt in wind and clocked a revenue of INR 6,056 crores. Compared to last year, our EBITDA margin on one hand was supported by cost efficiencies achieved, both in terms of COGS and fixed cost. But on other hand, we're impacted by lower operating leverage and lower profitability due to revenue mix.On Y-o-Y basis, our manpower expense, which are typically fixed in the nature, were done by 20%. And other operating expenses, which are semi-variable in nature, semi-variable by definition should change at a lower rate than revenue, were done by 32%, which is higher than 20% revenue decline on Y-o-Y basis. Thus, despite lower operating leverage, our pre-foreign exchange EBITDA margin came in healthy at 13.7%. We continue to remain focused on accelerated debt reduction. We have repaid about INR 797 crores of debt over FY '17 and YTD FY '19 compared to our schedule obligation of only INR 211 crores during that year. This is over and above $106 million or INR 677 crores debt reduction attained through FCCB repayment and conversion.Of USD 647 million debt at our overseas subsidiary, which we were looking to refinance till 2023, we have already repaid $73 million and propose to pay another $5 million to $6 million in quarter 4. Balance $569 million debt is in the process of being refinanced up to 2023. We already have required regulatory and credit approval and funding tie up is also in place for the same.During the quarter, as execution picked up, our current asset reduced net by INR 471 crores. However, despite this, our NWC increased by INR 412 crores due to current liability reduction of INR 883 crores.In current high level of NWC is only seasonal and [ mere ] temporary in nature. This is primarily caused due to lack of PPA clarity on some project, on which execution is temporarily paused. While we continue to make payment to our vendors, but I'm happy to say that those projects, where PPA clarity was awaited, has now got cleared in quarter 4 and we are likely to get payment for those projects. We had reclassified these orders as a framework orders, agreements and removed the same from our firm order book. In the last quarter, this is -- despite that, we continue to be backed by customer advance, have signed PPA, but only the ratification of this PPA is pending. We are happy to note that 185-megawatt of such order helped resume the ratification and has already been converted to firm from framework.With execution momentum picking up, we expect normalcy in our working capital cycle by March 2018. Under the auction regime, we expect more smoothen out quarterly distribution of the volume, resulting in a better utilization of working capital. Service revenue continued to remain healthy and stable at INR 1,340 crores. Moving ahead, our priorities are clear, stringent focus on cost reduction and driving further working capital efficiency, achieving debt reductions.Thank you, all. And we are now open for questions.
[Operator Instructions] We will take the first question from the line of Kashyap Jhaveri from Emkay Global.
I have two questions and all around Suzlon industry outlook, Slide #19 to 23. Now this GUVNL order, which was bidded at about INR 2.43, how much has that got to do with the equipment for cost also falling? And does it impact our margins as such?
Kelly, the [ indiscernible ] INR 2.43 GUVNL bid, there are different aspects to be kept in mind when you analyze the bid. First of all, if you see the winners of this bid are all those people who have not won in the SECI 1 and SECI 2 except for renew small capacitor of 35 megawatts. So therefore, they were looking for that. And what important is that at that time the bids -- not the reverse auction, the first bids went in for GUVNL. The Government of India still not announced the roadmap for bidding, which came subsequent to that. So therefore, there was no clarity or visibility with respect to how much would come in. That's one we need to keep in mind, why these bids happened the way it happened on this. Second, we still believe the INR 2.43 is very, very -- I don't know to call it competitive or whatever it is. And as far as we are concerned, we are not supporting those prices. In fact, except for one small order of equipment supply, we have not supported anybody in the bidding for these projects on this.
Then let's go to SECI 2, actually, where it was INR 2.64. There, there was all clarity about the PPAs and everything, right? But it's still INR 2.64, which is like INR 0.20 over and above what GUVNL went for. So that INR 2.64, what's the pressure on equipment manufacturers and consequent on margin?
No, I think the INR 2.64, if I remember right, we discussed -- did discuss in the last quarter. By that time, this number was known, I think, on this. But anyway, as I explained last time, I can just repeat once more. The tariff at INR 2.65 has to be seen in line with 2 or 3 factors. One is the what sites are getting offered for these projects on this. So these are the sites which are high wind sites, okay? So they are efficient sites, so therefore your generation, what you get from these sites on an annual bases is higher, so which definitely reduces the cost circle or whatever, without compromising to the extent on your capital expenditure on this. Second is that also, you have the advantage here of increasing your hub head going -- even technology-wise, going up to 140 meters and all that. So same site, again, is a additional generation. And where the increase in the CapEx for this additional height is much less compared to the increase in generation. Third, most important factor, even from the IPP side, the expectation of the returns was -- is less. Because that point of time when SECI 2 came also, that we didn't have this roadmap, so -- and SECI biddings, so therefore they also reduced their bidding. Having said that, yes, there would be some pressure on the margins, that pressure -- in spite of these aspects, I mean, that pressure is to be managed through the cost reduction, which is what Kirti explained that we started the process already in terms of OpEx reduction and in terms of manpower cost reduction. So the INR 2.65, under those circumstances, with those set of sites, I think, is justified. That's the reason we went and supported 250 megawatts.
Okay. And second question is on this GUVNL and D and GETCO, there was a stipulation from High Court that allocation letters could not be avoided. Has that been vacated?
I'm really not aware of what is the stay and vacation of that base. There's some legal that lapping in the -- but I really don't know what the latest status on that because we are not involved in either of the bids.
Okay. And last question on Slide #22. In the state auction, you have -- in the flowchart that you've given, 8- to 10-gigawatt of central auction and about 2- to 3-gigawatt of state auction. Now a lot of these states have gone onboard and announced that they wish to double or triple their wind energy capacities. So this state auction takes into account -- is it state-specific that you have included or probably it's just a general number?
See it's going to be a combination on the country as a whole. Because some of the states also have an option at this stage to buy from SECI, okay? You don't need to go for state-specific. So the combination of this is what we expect between the SECI and the state so we would have this 10 gigawatts of bidding. So it can keep changing from states, can increase SECI, it can come down whatever it is on this. But this is what directionally, 10-gigawatts is what we expect and that is what in fact the Ministry for Power also, our guidance -- has given a guidance which will be 10-gigawatt bidding. On top of it, obviously, you will have this captive and the other segments.
Okay. And just one last question. Slide #21, again, do you believe that within these 2 months SECI 3 and SECI 4 both can go off?
SECI 3 is already happening as we speak on 13th, okay? So SECI 3 is getting concluded. And as we speak, SECI 4, the first bid submission is also announced in first week of March or so. So I think within 10 days thereafter, they will have a reverse auction. So therefore, in our opinion, both SECI 3 and SECI 4 would get finalized positively before 31st March.
We will take the next question from the line of Puneet Gulati from HSBC.
Just looking at your financials for Q3, I know it's not really representative. But can you give some more color on -- at gross profit margin, why is it just 31.6%?
Yes. There are a couple of factors, basically. In quarter 3, there are a few things. One is basically, if you see historically, solar used to be a lower percentage of revenue in our revenue mix. In quarter 2, we completed almost all of our solar projects. So in this quarter, solar, which is a very low-margin business, has been a bit higher percentage as compared to history. That is the one thing. The second thing is, naturally, you have seen that prices as compared to last year has declined. So if you are comparing with last year, naturally, there was a execution of order, which were lower-margin order as compared to what was there in last year.
Actually, you can't compare -- as we said, you can't compare on 1 quarter basis the margins actually. You got to look at it on the long-term basis actually.
Right.
Yes, but still what percentage would be solar out of the total revenue?
Roughly about 19%.
19%.
Okay. And then so what in your view should be sustainable gross profit margin here?
See, basically...
Nine months.
Sorry.
Nine months.
Nine-month basis margin, what you are seeing in our result, that one should take as a basis.
Okay, okay. That's fine. And so also, if I look at your segmental revenue and divide the wind turbines, generate a revenue by the deliveries you made, the ESV comes at 52 million per megawatt. Would that be the pricing one should think about? Or is there some adjustment there as well?
No, I think revenue simple division by megawatt may not give you true result. Because there are 2 factors. One is service is separately shown in segment. But basically, in revenue, there are only turbine or sometime EPC. In this particular quarter, EPC portion has been very low due to lower execution.
Okay, okay. Fair enough. That's great. Lastly, you still have about 455-megawatt of orders, which are yet to be converted to firm. Is there a time line to when they would likely be converted?
Yes. This quarter.
This quarter. Okay, everything this quarter.
They're already with the regulatory commission. As we said, there it's -- we have the firm order with advance and also we have the PPA signed up. They -- it needs to be ratified with the regulatory commission. We expect that to happen February or early March.
Okay, okay. Any update on exit from CDR?
It will happen in early next financial year. We are continuing to work with our lender group. And the signal what we are getting is that they will revisit after this year because this year was a year of transition. And during that period, we didn't wanted to take additional exposure of CDR exit.
Okay, okay. Any plans to monetize your services business, O&M business?
Right now, I would say, it is too early to say. We keep that option with -- available with us...
Yes, we keep on evaluating opportunities.
And naturally, when volumes for this industry are going significantly up, we need to -- it is sensible for us to wait little more, so that we can get better value for our shareholders.
Okay, okay. Lastly, would you still maintain your guidance on EBITDA margins at about 14%, 15%?
We have already delivered in 9 months almost closer to that number.
Yes, we maintained that. It's around that range.
For FY '19 as well?
Yes.
We will take the next question from the line of Deepak Agrawala from Elara Capital.
Sir, my first question is regarding this 455-megawatt and the 185-megawatt which was ratified. What is the execution time line that you're looking for this?
PPAs normally, in case of -- one said the PPAs normally provide for 24 months of execution. So obviously, we expect that to be get completed early next year. And some PPAs, we expect to complete before March, some part of it.
This March, '18 itself?
Yes, yes.
Okay. And is it possible to give approximate what megawatts we are expecting by March?
It's difficult to say. We said -- we gave a guidance in terms of supply, so, obviously, after 1.2 gigawatts of supply. So we will closely follow between supply and direction. There's hardly anything will be left out. So...
Okay, okay. And my second question is now, we have repaid, as Kirti Vagadia mentioned, about INR 797 crores in the last 18 to 21 months, but still we see that interest cost is almost flat Y-o-Y. This is despite there's a reduction in the interest rates also. So is this -- is the reduction in the interest rate in long-term getting offset by a higher working capital debt?
Yes, you are absolutely right, that it is in this particular 9-month, it is due to higher working capital. But in a long run, it will reduce. In this 9-month, working capital utilization remained higher due to the reason which I explained during the speech.
What's the working capital debt at present like approximately?
Approximately, INR 3,600 crores, INR 3,800 crores is the working capital debt. But of which, there are some temporary debt for solar project which will be going off once we sell one solar project. So thereafter, on a sustainable basis, INR 3,000 crores is the fund-based working capital debt.
Okay. And my third question is now like we agree with your -- some reasoning that you are giving for the rationale for the reduction in the wind tariff. But most of the investors with whom we have a chat, usually, are fairly suspect of whether some of these projects will ever see the light of the day. So as an OEM, you might be having some kind of a strong judgment. But do you think some of the IPPs itself might just default and the projects might just remain on the paper?
No, no. See we can only comment about what we will do. But only thing we can comment from that side is that to be, whose are the clients we're tying up, so there, we apply our prudence check and then we'll only go with such large customers. If you see in SECI 1 and SECI 2, we went with the same customer who is the large utility. Therefore, we choose the right kind of customers, whom we think that they are actually understanding the business when they're putting in the bids. So beyond that, on behalf of the IPPs, I won't be able to comment.
Okay, okay. And my last thing is any accretion or any plan of building our solar bid book as we enter into FY '19, because it's quite a while that we have seen any additions at the solar space?
On solar space, we'll come back when -- once the hybrid picks up, which is expected to happen. So when the wind solar hybrid in FY '19 we expect would start in this country. And as you know that the SECI, in fact, they've announced the first hybrid project in -- and it is based in Andhra. So therefore, that will -- the process is going to start. So that's the time when we will come in, not at a pure solar but solar wind hybrid.
Okay. And this is of what size, the AP...
That's secured around [ 160-megawatt ], the [ outside ] expression of interest on this. And that is the [indiscernible] EPC. SECI will own that, SECI will fund that. It's like World Bank funded to SECI.
Okay. So by then so, as an independent business, now whatever we have, we'll just execute it and get out of it then, in other words?
Yes. Yes, you're right.
We will take the next question from the line of Mohit Kumar from IDFC Securities.
Congratulations on a good set of numbers in a difficult environment. I have one question pertain -- my first question pertains to the order book. We have around 677-megawatt order book, and I think out of which, one 500-odd megawatt, I believe, for auction, the balance left is 177 megawatts. Out of the 177 megawatts, 20 is solar. So we are left with 500-megawatt of primarily auction-based order, 100-megawatt of FiT-based order and the balance is 70 megawatts. So my question is that, and we're guiding for 1.2-gigawatt of total volume for the -- maybe we are expecting a significant amount of this framework order for 55-megawatt to get executed in the balance 3 months, am I right here?
No. Your analysis is slightly off-guard on this. The analysis of 677 [ indiscernible ] has 500 megawatt of SECI 1 and 2 is not right because SECI 1, already we executed a significant part of it, so that is out of it. Whatever is executed is not shown in the 607 megawatts, okay? So therefore, it is not right to say that 607 megawatts has 500-megawatt of SECI 1 and SECI 2 because SECI 1 is executed significantly. So it's -- that break up is not right. We have a huge amount of captive in this, and there are other projects that are also on this. As we've said, if you want to reach 1.2-gigawatt, roughly 350 megawatts is what to be done, in that 70-megawatt is anyway solar, the balance is already out on hand. It [ shall be determined ] what it [ means ]. So therefore, I don't see any issue in delivering that sort of a volumes. Plus, we also have this captive basically, it is captive plus we have the SECI balance out of SECI 1 and we also have SECI 2. We do have a recently converted orders into the framework to firm, which I said, that some part of it is getting completed even commissioned before [ March ]. There are various combinations of this. So out of all this, we need to just pick up 350-megawatt to complete -- reach 1.2 gigawatts. So I really don't see that as a big challenge as far as order book availability is concerned.
You also spoke about less than 25-megawatt will go for FiT-based tariff. Have you heard anything from any of the regulators till date or do you think it's still evolving and it will take time for this segment to firm up?
We understand that [ regulatory ] from the Ministry of Power has gone to the various states in this regard.
It's just communicated last week.
And so, the increase in OMS services, our revenue is not -- it seems to be a little lower side. We're expecting around 8% to 10% jump. But while given the fact at FY '15, we commissioned around 1.1 gigawatt, we sold roughly around in FY '15?
Yes, that will come in FY '18 into the revenues.
Okay. So we'll see a higher jump in FY '19?
Yes, yes. Because that's 2 years. Yes, it's only two years.
Yes. And there is a one international subsidiary portfolio, which was there in FY '17 9-month, and it is not there in 9-month FY '18. So if you adjust for that, probably we are well within the growth of more than 5%.
So this reduction implied cost Y-o-Y of around INR 50 crores, is this run rate sustainable, this is the kind of run rate we should sort of expect going forward of INR 1,000 crores per annum?
When we spoke previously that because of tariff, there's going to be pressure on our margins. Unless we work on the cost structure and everything, not just the equipment cost structure, we need to work on manpower and OpEx. If not, we can't sustain those margins. So therefore, it will be our continuous efforts. I don't want to put a number to it. It will be our continuous efforts to continue this basis of reduction of the manpower cost. It is to a large extent is sustainable.
Is it possible to share the inventory number and receivable numbers at the end of December 2017?
It is already there on Slide #41.
We will take the next question from the line of Vinod Malviya from Florintree Advisors.
In the first 9 months, you have done a delivery of 683-megawatt in the wind. Can you provide a breakup of like out of this, how much would be under FiT and how much would be from the SECI 1?
Normally, we don't keep such data. It happens on an overall basis, so before I --I really won't be able to offer exact breakup of how much is SECI 1 and how much is FiT and how much is captive. So there are different segments. Everywhere, the pricing is different.
But, [ broad ] breakup, we have tried to give you on Slide #6 that 19% is solar, 20% is captive and PSU and balance is wind volume.
Okay. Similarly, out of the 607-megawatt which you have as an order backlog, so this will have SECI 2 as an entire thing, but partially of some SECI 1 also orders included and again you will have PSU and captive order, right?
Correct. You're right. Absolutely, right.
Great. And second question was on your...
There's also FiT.
Okay. FiT. And the second thing was on the raw material costs. So there's a lot of purchasing -- purchase of finished goods. Is it relative to the execution of solar project, that's why we're seeing a jump in the purchase of finished goods?
Yes. That's correct.
Yes, you're right.
We will take the next question from the line of from Sameer Dalal from Natverlal, Dalal & Sons.
A few presentations ago, you had talked about increasing your market share in the overall wind space quite significantly to well over 50%. If I just look at SECI 1 and SECI 2, we've only got 25% of the order book and others have obviously taken out a bit of share. Now going forward, what strategy are you putting in place to ensure that you get a bigger chunk of these 2,000 -- 2-gigawatt orders that are coming in SECI 3 and SECI 4, where you are able to get higher volumes against the capacity that you've got installed in the country?
Our wish is to have, as we said, that 40-plus market share, but at the same time, it is also our, the principle that -- market share at any margins is not our principle. So obviously, we'll be extremely careful when we're talking about taking the orders at what margins. That's the reason I mentioned, sometime back in Gujarat bidding in this business, we stayed away from taking any market share. But that is a solo there. So we're not going to compromise in terms of margins on a long-term basis. Having said that, SECI 3 and SECI 4, like every bid, we expect to have good margin -- good market share on this. So let's wait and see by the end of March the market share. Because the market share and margin will go hand-in-hand.
Okay. So if you can at least give us some visibility maybe or thought process of yours. For the people that are bidding for SECI 3, which is now ongoing, like you said, have you done any tie-ups with any of the people bidding? So if you could give us some -- I mean, out of a total number of bidders, how many bidders you have tied up with?
No, I won't be able to say that how many bidders. But the 3,700-megawatt, what is coming in the bid size, we did have tie-ups ourselves on this, and we're still tying up. We have some and we're still tying up. But because of confidentiality reason in the bidding, so we won't be really able to say that what megawatt and things to that.
Okay. And you also mentioned one thing on solar side, that once you're finished with the current existing ongoing solar projects, you're not going to take up any more solar projects unless they're in the hybrid model. So I mean, you must have an entire setup for the solar side. Now given the fact that you have no more business, that's going to be a cost center, which is going to be there for a while before you get some order flow. So can you give us some thought process on what you're going to do with something like that?
In solar, we executed the projects with a very lean organization because we were not manufacturing it. We were actually procuring and implementing it on this. So therefore, we have a very lean team managing of solar business. And that also, is how we leverage and experience our wind team. Except for the specific few people in the engineering side, everything else is from the wind team on this, and they get much for the wind team. So there is nothing of that nature of somebody becoming [indiscernible], And the engineering team of solar, anyway we need. because we continue to work on solar for the hybrid projects.
My next question, is why do you want to not do the current wind and solar projects the way you're doing it? Is there some sort of concerns on profitability? Why you're not taking that forward?
Yes, see, in wind, we manufacture everything from end to end, okay? So therefore, when we're doing an EPC for the wind, our amount of work we do internally is much higher. In solar, we actually buy everything. Just now like Kriti was doing that the finished goods purchase. So when you're buying and supplying it, obviously, your margins are less. But your risk on EPC still remains the same as what you're doing on wind. Without control on the cost, but the risks remain the same. Whereas in wind, we have a control on our cost because we manufacture everything. The margins are low, the returns are low, the risks are high, so -- and in the same amount of efforts. Because the wind is growing significantly, we would like to concentrate there and enlarge our volumes there, what we can do in here rather than spending time on solar, where margins are low.
But simple answer is that it doesn't fit into risk-reward ratio.
Okay. And one last question. I wanted to understand your costing versus competitors. Now obviously, competitors were able to participate in some of these projects, which you were not able to participate. Is there any way we can reduce our cost to be able to compete in this similar kind of bidding projects, where we were unable to earlier? I mean, what are the steps you're taking for something like that?
You see, the cost is not the driver for bidding. Whether I want to put my capital at a risk for bidding or not, that is the question I'm answering myself. If I am able to have a pre-bid arrangement with a strong customer, why I need to put my balance sheet for that purpose.
And also, the assumption that if you're offering a lower price, means lower cost, I don't know to what extent is right. If you have the cost numbers of the competition [ indiscernible ], I'm willing have a cup of coffee with you separately.
No, I don't have it. Actually, I was hoping that you'd be able to tell us what the cost structure is on that.
I just said that lower price doesn't mean lower cost.
We will take the next question from the line of from Shekhar Singh from Excelsyor Capital.
Just the sharp drop in wind orders in the last 1 year, can we just attribute it to the fact that we were not ready for bidding the status?
No, no. There were no opportunities to bid till now. Until now, the bidding, what happened is we need 3,000 megawatts, 2,000 megawatts of SECI and 1,000 megawatts in the states of Tamil Nadu and Gujarat. What is available is only 2,000 megawatts and that also has a time to execute. That's the reason we said it's not. It is not that people are not ready. You have seen in each bid when it came out, there was a good response from that. Even for the SECI 3, for 2,000 megawatts, there are offers for 3,700-megawatt there. Some bidders are available. So it's a question of -- of only thing, if you see the first bid to second bid, it took almost about 10 months, SECI 1 to SECI 2. And SECI 2 to SECI 3 is 4 months and SECI 3 to SECI 4 is 1 month. It's getting accelerated now. So more opportunities are coming now, so therefore the volumes will get built up for FY '19 and FY '20.
Okay. And you mentioned like over the -- in the coming 3 months, you are expecting a pretty large auction?
No, no. I'm not expecting it. It's announced. As we speak today, 2,000 megawatts bid, first round of bidding is over and the reverse auction is due on Tuesday, that is 13th of February. And another 2,000 megawatts bid has been announced. The first round of bidding is, I think, 7th or 8th of March. And we expect that 10 days, 15 days thereafter, there will be a reverse auction. So the entire 4,000-megawatt would get finalized. Plus, 500-megawatt in Maharashtra. I think the bid due date is on 20th February or something. So this is -- these are the dates which are already announced. There's no expectation. It's just a set schedule.
So just looking near to next year, that is FY '19, do we expect a much higher number as compared to FY '18 in terms of the auctions which are coming out?
Yes. As for the -- I hear the same guidance what you hear, the Minister for Power guidance, is that, he said he will -- they will be doing 10 gigawatts state and central put together next year as well as the following year, FY '19 and FY '20. There'll be 10, 10 gigawatts of bidding.
And that is reflected on our Slide #20.
And in case if that sort of build actually come in, are we prepared to maintain our market share? Or are we prepared to be able to handle that sort of demand?
Our aim would be to maintain -- our target is always to maintain our market share, market leadership, also.
And we do have a sufficient manufacturing capacity.
Perfect. And just in terms of the set timelines, like after the order comes in, so basically, like okay, I hear the bidder win this order, then the execution -- then the order placement starts and then the execution happens? What is the time line from the time of winning the bid and -- here?
Here, the timelines are both in line with the bidding also. The bidding, current SECI 3 and SECI 4 bidding, the timeline set by the government of India is that the LoA to PPA is 3 months. And thereafter, within 18 months, you have to commission the project. Obviously, 18 months, you're not going to commission the entire project. So when the clients tie up with us, they will tie up for a phase with commissioning before 18 months.
Okay. And say, after sales, the services portion of the revenue, that starts after almost 2 years of commissioning, you said?
Yes.
We will take the next question from the line of Shirish Rane from IDFC Securities. As there's no response, we'll move to the next question from the line of [ Anan Dubey ], individual investor.
I want to ask a couple of questions. Sir, the first question is, what is the status from Andhra board for 800-megawatt order?
Come again?
What is the status from Andhra board for 800-megawatt order?
Andhra?
Yes. Yes, sir.
I think there are no orders from Andhra.
There's nothing. Andhra board -- there's no -- Andhra government is not placing any order on us.
Okay. And second question, what is the status for Karnataka board order status?
No, no. Maybe you're asking about the PPAs on this. In case of Karnataka, the PPAs have been ratified by the regulatory commission, and we received the signed PPA copies already. In case of Andhra, PPAs have been signed. They have been submitted to the regulatory commission for ratification.
Okay. Sir, my third question regarding how many megawatt order win by SECI in Q3?
Pardon?
How many megawatt order win by SECI in Q3?
Q3, there was only one, which came into 1,000 megawatts order. We have one 250 megawatts.
We will take the next question from the line of [ Shankar B. ], a retail investor.
First of all, congratulations for commissioning your first operational offshore wind mast in Arabian Sea. My question is, actually, this government of India has announced that this bidding is going to take place for 5-gigawatt offshore wind capacity in the next maybe 1 or 2 years. So how is Suzlon placed on this front?
No, government is looking overall 10-gigawatt the offshore. Out of that, maybe first, will be the 5-gigawatt, maybe the bidding or may come out the FiT. We don't know. But central government is working on that direction. But we are preparing ourself. As you know, the projects will be on IPC basis, so we have to prepare the locations. We have to prepare the building infrastructure and other things. So we are working in the last 3 years in the offshore infrastructure development and everything. So we are just waiting as and when government announce the [ firm ] policy or bid or FiT, so then we can able to execute the project in the offshore. You have to understand offshore takes -- if it comes, then it also takes 2 to 3 years to build the project.
Okay. So Suzlon is already having this technology from [indiscernible] for the offshore reach?
Yes. We have a product, technology and competency and expertise to execute the offshore.
Okay. So where do you see this offshore business? Mostly companies are having a tie-up with -- a 1 plus 1, Suzlon plus one more company like that all over the world for the offshore business. So is there any plan in Suzlon, thinking that we should go for a joint venture for offshore instead of going alone?
No, no, no. The business model where we like, the Suzlon role will remain to supply the projects, including EPC part and the turbine supply. And the customer, mainly IPP or a financial investor, will do the bidding or FiT regime and they will invest. So it's become a consortium. I understanding your view. But for Suzlon level, there is no need of any joint venture. Our job is the way that we are doing project in onshore, we will do in offshore.
Okay. And then maybe update on this, your note, EUR 50 million from Senvion, which you announced in 2015?
[ On the order of ] EUR 50 million.
No. I think that is linked with sale of a company by them. And to the best of my knowledge, that company is not yet sold to somebody.
We will take the next question from the line of Shirish Rane from IDFC Securities.
My question is on the working capital side. If one looks at it last year for the third quarter, you had a very high working capital at INR 3,167 crores, which fell to INR 2,076 crores in March '17. Can we expect a similar fall this time around from INR 3,800-odd crores down to something like INR 2,700 crores, INR 2,800 crores?
Yes, that is fair to assume.
So there will be a part of it, which the solar SPV, which you will sell, so that will reduce the debt plus there will be some operational improvement which will happen, correct?
Yes, there will be collection from receivable, yes.
So both ways, it will help in terms of working capital?
Correct.
And also, so many projects will be installed and commissioned in the quarter 4, so that money will be unlocked.
And the second question, sir, was in terms of when you execute the SECI auction bids or any auction bids, is there a better working capital cycle for us or is it the same as it is for any other order?
There are 2 aspects to it. Number one is, so far, if fund-based working capital is concerned, you are right that it will be smoothened because we get longer execution time, so seasonality element can be removed. So far, if non-fund-based working capital is concerned, which is a bank guarantee and LCs, probably, it will have a bit longer period.
Okay. But in FY '19, one should see some amount of smoothening of working capital rather than having this kind of buildup...
Yes. That is fair to assume. Yes, that's correct.
But still, FY '19 will be a [indiscernible] bidding point of it, but FY '20 is what is the maximum [indiscernible]. But FY '19, yes, it will start.
Okay. And one of the earlier questions, some clarification. In terms of SECI 1 and SECI 2 auction execution, you said SECI 1 has, to a large extent, got executed. So SECI 2, have you started execution or it is not yet started execution?
Yes, we've started the project work.
Okay. So it will get executed over the next 2 or 3 quarters?
Yes.
We will take the next question from the line of Puneet Gulati from HSBC.
Just one question. Is there any update on the repowering of the wind sites that the government was once thinking about?
We -- from our side, we are ready with some business cases on this. But right now, being the beginning on this, we need the policy framework also to come up. There were some policy framework earlier, which was more suitable for FiT regime. Our FiT regime not being there to complete the bidding. They need to see our [ client ]. We understand the government of India is looking at this repowering option and then coming with some guidelines in terms of how the tariff to be fixed for the repowered capacity. So we're waiting for that. Otherwise, we have done our analysis and we're ready with 2 or 3 places where we'd have full business case.
Okay. And when is that expected?
Hopefully, before March.
Okay. Okay. That's close.
March end, the policy is expected, not the execution.
Yes, of course. Okay. That's good enough for policy. Okay. And then how big can that opportunity be?
It all -- it will depend upon what is the policy. If the policy is attractive, obviously, it's a huge market for us. In fact, this is also a market we're tapping in the U.S., with PTCs being eligible for repowering as well.
In India, we'll be the largest beneficiary because we have the largest installation and oldest.
But that will be bid, right? Anybody would be allowed to bid for repowering it? Or will you have some...
We don't know.
Powering is not going on a bid process. It will go on an FiT basis because most of the old turbine is owned by the single owners. And so many owners are there. So particularly, it's bid and everything. That location is owned by those party, so it will not go. So now the state-wise FiT mechanism, where MNRE is working on the scheme, how to put the guidelines for the repowering and what should be the conditions for that. And then based on that, the state regulator will announce the tariff for the repowering, and that will happen based on that. And the immediate -- if that policy comes, after that, immediately 2,000-megawatt projects are, the due for the repowering. So those will be available.
That was the last question. I now hand the conference over to Mr. Tanti for closing comments.
Well, you see we have policy of reforms and growing the consequences to mitigate the climate change risk, has ensured the momentum in the favor of the renewable energy across the world. It is [indiscernible] the new wealth of interest and positive actions in the clean energy sectors. Worldwide, almost 60% new capacity in the last 2 years is coming from only renewables. And that has sourced the very strong momentum. Based on the certain forecast by 2035, the new additional capacity of the world, 60%-plus will come only from the renewables. So long-term sector future is extremely good. In the same vein, in our country also, more than 60% new capacity last 2 years is coming from only renewables, and that momentum will continue for the next 5 to 10 years in India also. 2017 laid the foundation for sustainable and inclusive sector growth. Investors are [ bullish ] and excited to be a part of the renewable growth story in India, and the momentum will continue together thusly. The wind industry is poised to grow to about the immediate from the next year to 10-gigawatt, it will go to the 14-gigawatt, including the state and the central bidding, plus the captive, PSU business offshores, wind solar hybrids, small projects and repowering. So there is quite good visibility of the volume for the next 5 years we see, and we have to prepare our organization for that, and we are fully equipped for that. Our focus remain to increase our market share, expand the market and continue our focus on R&D and the cost efficiency to bring down levelized cost of energy down so that we can able to unlock the size of market bigger and bigger. That's the strategy we are working. Apart from the onshore wind, we believe the areas such as wind, solar, hybrid, repowering and offshore are the huge opportunity in the long-term basis. I assure you once again, so we are very dedicated and focused on the value creation for all our stakeholders, and we seek your continuous faith and support. If I say the SECI 1, the one example, how competitive we are. The SECI 1, the order was given by the 2 parties -- 4 parties and there was a deadline was by December end, everyone has to acquire the 100% land, you will be surprised only Suzlon has completed the acquisition of the land and none of the other bidder has acquired the land. So that is the competitive edge we have in our India basis to execute the project in the certain time frames. I also thank my team for their commitment and patience despite the challenging and external environment. Thank you, everyone. We hope all your queries are answered. In case of any or further question, get in touch with my IR team. They will be happy to answer your other queries. Thanks a lot, and I appreciate your time and presence with us.
Thank you very much.